Oil bulls were unhappy with yesterday’s OPEC announcement, which disappointed by adding nothing to the 9 month supply cut extension announcement which had already been leaked and largely priced in while leaving key questions unanswered, including what it has planned for the long-term.
The broader Wall Street commentary was similarly downbeat: ‘To say that yesterday’s performance was disappointing for bulls is an understatement,’ Tamas Varga, analyst at PVM Oil Associates wrote in an emailed report. ‘It is, however, not a foregone conclusion that the trend is definitely turning. The question now is whether yesterday’s sharp drop in oil prices was a panic long-liquidation or the technical picture is now firmly turning bearish.”
Barclay’s analyst Michael Cohen captured the mood best with a note overnight titled “No light at the end of the tunnel:, in which he writes that “OPEC and several non-OPEC countries finalized plans to extend production cuts for an additional nine months (through Q1 2018) without specifically articulating an exit strategy. During the press conference, Saudi Energy Minister Khalid Al-Falih expressed confidence in the plan to extend the cuts through Q1 2018, saying that inventories would fall below the five-year average before year-end, but cuts should remain in place during Q1 2018 due to seasonal demand weakness, which we highlighted yesterday (OPEC’s Vienna Meeting: Intermission, May 24, 2017). By our calculations, if half of the supply deficit is applied to OECD stocks, we do not see the inventory level approaching the five-year average by this timeframe.”
This is exactly what we warned about in “The Math Behind OPEC’s Revised Production Cut Still Does Not Work.”
Below we excerpt some other of the key highlights from MS, which was clearly soured on the outlook for oil prices after OPEC’s meeting:
This post was published at Zero Hedge on May 26, 2017.
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